On 23 December 2020, the Auditor General’s report on the audit of the public accounts for the fiscal year ended 31 December 2019 was laid in the National Assembly. Since then, the media has been reporting on various aspects of the report, especially where the report indicates evidence of irregularities and mismanagement in the use of public resources. The Public Accounts Committee (PAC) has to determine whether such irregularities and mismanagement did actually occur, having regard to documentary evidence provided and explanations given by those responsible for managing the funds.
Regrettably, the PAC is five years in arrears in its examination and reporting on the public accounts, although some amount of work was done for the years 2015 and 2016. Its last report was for the combined years of 2012 to 2014, which practice in itself is undesirable and should be discontinued once the PAC brings its work up to date. If the newly appointed PAC, which is expected to hold its first meeting today, decides to conduct its examination of these accounts in a sequential manner, by the time it gets around to 2019, many of the responsible officials may no longer be in place to provide the necessary answerability. This is why we had suggested that the Committee takes a two-pronged approach involving the full committee examining the most recent year (i.e. 2019), with a sub-committee attending to the backlogged years. The PAC also needs to ensure that its examination and reporting on the 2019 public accounts are completed in time for the consideration of the 2021 national budget. In order to do so, it may be desirable for the Committee to first review the Auditor General’s report to identify the issues that require special attention and attendance by the concerned accounting officers and other officials to provide the necessary explanations. In other words, not all accounting officers should be asked to appear before the PAC. In this way, the Committee can complete its examination and reporting in a more expeditious manner.
In last week’s article, we began a discussion of the 13 sets of financial statements that comprise the 2019 public accounts and the Auditor General’s certification of them. In today’s article, we continue that discussion.
Schedule of the Issuance and Extinguishments of all Loans
The Schedule shows two loans totalling $399.706 million outstanding as of 31 December 2019. However, it appears very much incomplete since it did not include loans taken by the Government of Guyana from international funding agencies on behalf of State agencies, with corresponding on-lending agreements with these agencies. For example, the 2016 audited accounts of GUYSUCO showed borrowings totalling $32.727 billion, most of which were based on on-lending agreements with the Government, especially in relation to the Skeldon Estate Modernisation Plant. A similar observation is made of the Guyana Power and Light which showed a long-term liability to the Government of $20.831 billion as at the end of 2012. This observation is substantiated when one examines the public debt statement where these loans are also reflected. It is evident that the Schedule of Issuance and Extinguishments of Loans has been significantly overstated. Despite this, the Auditor General gave the Schedule an unqualified opinion in terms of its completeness, accuracy and validity as well as its fair presentation.
Schedule of Government Guarantees
The Schedule of Government Guarantees shows four amounts totalling $16.585 billion, including the sum of $15.840 billion guaranteed on behalf of National Industrial and Commercial Investments Ltd. (NICIL) to assist in the restructuring of the Guyana Sugar Corporation. The latter amount appears to have been understated by $14.160 billion since the full amount of the guarantee was $30 billion. Of the amount drawn down, $1.760 billion was repaid. However, it is not clear whether it was repaid by NICIL or the Government. In his report, the Auditor General stated that apart from the contract and the summary of the transactions, no other documentation for the disbursement and repayment were presented for audit. As a result, he was unable to determine who were the recipients and how the amounts were accounted for.
We had pointed out in our previous article on the subject that the Government’s guarantee of NICIL loan was not reflected in the 2018 public accounts despite the fact that the agreement was entered into on 24 May 2018. That omission, however, did not attract any comment from the Auditor General in his 2018 report.
The Schedule also includes two guarantees totalling $244.797 million in relation to the Guyana Telecommunications Corporation and Guyana Transport Services Ltd. These entities are, however, no longer in existence. Since 2003 and perhaps earlier, the Auditor General has been recommending the transfer of the two amounts to the public debt. Given the time that would have elapsed, these loans may no longer be valid and should therefore be written off after a proper investigation is carried out. The Auditor General concluded the accuracy and validity of the amounts shown in the Schedule could not be determined. However, his conclusion contradicts the unqualified opinion that he has issued on the Schedule.
Statement of Contingent Liabilities
The Fiscal Management and Accountability Act defines a contingent liability as ‘a future commitment, usually to spend public moneys, which is dependent upon the happening of a specified event or the materialisation of a specified circumstance’. The International Accounting Standards No. 37 considers it as a possible obligation depending on whether some uncertain future event occurs; or a present obligation but payment is not probable, or the amount cannot be measured reliably. An example is litigation when it is uncertain whether an act of wrongdoing has been committed and when it is not probable that settlement will be needed.
The Statement of Contingent Liabilities submitted for audit is the same as the Schedule of Government Guarantees. It is, however, evident from the above that the two are not the same, though there may be some overlap. For example, there are several lawsuits before the courts the outcome of which are pending. These should be considered contingent liabilities. The Auditor General, however, issued an unqualified opinion on the Statement of Contingent Liabilities.
Overdraft on the Consolidated Fund
The Statement of Assets and Liabilities of the Government showed that the Consolidated Fund was overdrawn by $124.288 billion as of 31 December 2019. At the end of 2017, the overdraft was $155.795 billion, a reduction of $31.507 billion. This was despite the fact that Government recorded fiscal deficits of $27.286 billion and $29.925 billion for the years 2018 and 2019, as per the Minister of Finance’s End-of-year reports. Taking this into account, the overdraft on the Consolidated Fund should have been $213.006 billion, a difference of $88.718 billion. In 1993, the Monetary Sterilisation Account was established at the Bank of Guyana into which the proceeds of medium-term (182- & 365-day) Treasury Bills are deposited and out of which payments are made as the Bills mature. According to the notes to the 2019 public accounts:
The purpose of the Sterilisation Account is to remove excess liquidity from the financial system. The vehicle for performing this is that Government issued 182 and 365 day Treasury Bills. The cost to the Government is the interest charge on the redeemed T-bills as they come due. This is a statutory cost charged to internal interest expense. The Monetary Sterilisation Liability should be exactly offset by the Monetary Sterilization Bank Account, creating a fully funded Liability.
As of 31 December 2017, the Sterilisation Account reflected a positive balance of G$77.537 billion. However, at the end of 2018, the balance was reduced to $21.558 billion with a further reduction to $1.880 billion as of 31 December 2019. This significant reduction was mainly due to the proceeds from the issue of the issuing of the 182- and 365-day Treasury Bills being deposited into the Consolidated Fund, instead of the Monetary Sterilisation Account.
The Auditor General quite correctly raised this matter as a concern. The Ministry of Finance contended that the Minister is empowered under the FMA Act to seek funding by way of borrowing in order to reduce the overdraft on the Consolidated Fund and that the issue is more related to bridging a fiscal gap and has no relationship to monetary policy which falls under the remit of the Bank of Guyana. The Ministry cited Section 61 that stipulates that proceeds of any such borrowing by the Government shall be paid into the Consolidated Fund. The Ministry, however, overlooked the fact that while Section 60 allows the Minister to approve the use of advances in the form of overdraft on an official bank account to meet shortfalls during the execution of the annual budget, all such advances have to be repaid before the end of the fiscal year. That apart, contrary to the claim by the Ministry, the issuing of medium-term Treasury Bills has more to do with the monetary policy of mopping up liquidity, and not to finance budgetary shortfalls, hence the rationale for the creation of the Monetary Sterilisation Account.
In our article of 9 December 2018, we had stated that the overdraft on the Consolidated Fund was estimated at around $210 billion at the end of 2019. The then Minister of Finance took us to task and queried the source of our information. He stated that the Bank of Guyana had advised that the overdraft was $62.2 billion as of 7 December 2018. We responded in our article the following week by referring to the audited public accounts for the years 1992 to 2017; the analysis we had carried out (including the presentation of a table as well as a graph); and the Minister’s signature on the Statement of Assets and Liabilities as of 31 December 2017 attesting to the overdraft on the Consolidated Fund of $155.795 billion. We had also emphasized that the Bank’s advice was in relation to the net balance of Government deposits held by the Bank, which balance included the amounts held in the Monetary Sterilisation Account as well as in other government accounts that are not part of the Consolidated Fund.
Since then, there was no further word from the Ministry as regards the overdraft on the Consolidated Fund. As indicated above, the balance on the Monetary Sterilisation Account as of 31 December 2018 was reduced to $21.558 billion, with a further reduction to $1.880 billion as of 31 December 2019 because of the decision to pay into the Consolidated Fund the proceeds from the issuing of medium-term Treasury Bills.
Given the above, our concern is that while the notes to the public accounts specifically state that the accounting policy for medium-term Treasury Bills is for the proceeds to be deposited into the Monetary Sterilisation Account in order to create ‘a fully funded liability’; such deposits were placed to the credit of the Consolidated Fund in violation of that policy. This raises the important question as to whether this action was not an attempt to mask the true extent of the overdraft on the Consolidated Fund.
We maintain our previously stated position that the overdraft on the Consolidated Fund at the end of 2017 was $155.795 billion. Considering the reports of the Auditor General for the years 2018 and 2019, that overdraft has been estimated to increase to $213.006 billion as at the end of 2019. When the budgeted fiscal deficit for 2020 is taken into account, the overdraft on the Consolidated Fund as of 31 December 2020 is estimated at $288.906 billion, as shown below:
$M
Overdraft balance as of 1 January 2018 (per audited public accounts) 155,795
Add: Excess of expenditure over revenue
2018: $254.783 billion minus $227.497 billion 27,286
2019: $282.456 billion minus $252.531 billion 29,925
2020: budgeted fiscal deficit ($329.5 billion – $253.7 billion) 75.900
Estimated overdraft balance as of 31 December 2020 288,906